Short-Term Return Predictability and Repetitive Institutional Net Order Activity
Journal of Financial Research, (2017) vol. 40, no. 4, 455-477
37 Pages Posted: 14 May 2013 Last revised: 8 Feb 2019
Date Written: May 10, 2017
Half-hour returns predict same-half-hour returns on subsequent days. We hypothesize that this is due to institutional traders who execute their parent orders over multiple days ("repetitive institutional traders"). Using a unique data set that provides masked trader identification and trader type, we find that the half-hour net order submission activity of repetitive institutional traders is predictive of same-half-hour returns on subsequent days, and that this relationship subsumes the return predictability at shorter intervals. Repetitive institutional traders incur lower transaction costs than their non-repetitive counterparts, suggesting that other traders compete to provide liquidity to the anticipated order flow originating from the repetitive traders.
Keywords: momentum, return predictability, institutional traders
JEL Classification: G10, G12, G14
Suggested Citation: Suggested Citation